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Claims for Specific Performance

Payment in lieu of performance

In the words of Innes J, Farmers' Co-op Socy (Reg) v Berry 1912 AD 350:

"Prima facie every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party, so far as it is possible, a performance of his undertaking in terms of the contract . . .

It is true that courts will exercise a discretion in determining whether or not decrees of specific performance should be made. They will not, of course, be issued where it is impossible for the defendant to comply with them. And there are many cases in which justice between the parties can be fully and conveniently done by an award of damages.

But that is a different thing from saying that a defendant who has broken his undertaking has the option to purge his default by the payment of money. For in the words of Storey (Equity Jurisprudence, s 717(a)), 'it is against conscience that a party should have a right of election whether he would perform his contract or only pay damages for the breach of it'.

The election is rather with the injured party, subject to the discretion of the court".

Hanna v Basson and others [2016] JOL 34745 (GJ)

The parties to the litigation, Hanna (Plaintiff), Basson (First Defendant), Dreyer (Second Defendant) and Plot 31 (the Corporation through which the development was to be implemented), concluded an agreement relating to the development of land on the Vaal River, intending to use the developed property as a weekend retreat for their mutual benefit. Their idea was to build three similar residences, each of which would be used by each of them, as well as an employee's cottage. The land was owned by the Corporation. Basson financed the development of the dwellings.

The idea was that Hanna and Dreyer would pay their share of the costs associated with the development in installments, whereupon their respective equal share of the membership interest in the Corporation would be transferred to them.

The friendship soured when Hanna acted in contravention of the agreed rules relating to the use of the land, bringing animals onto the property, holding wild parties and disturbing the peace with quad bikes. He also converted his garage into a bedroom. A bitter feud followed in the litigation that ensued between, in particular, Hanna and Basson. Upon asking for a settlement sum, Hanna was informed that the Corporation, controlled by Basson, proposed to sell the property to a third party. An agreement of sorts was subsequently reached in terms of which the Corporation granted Hanna a right of pre-emption to acquire the land and the development.

Basson later admitted that there was no third party purchaser, and that the notification regarding the proposed sale of the property was made only to elicit a response from Hanna and from Dreyer. Subsequent to the commencement of the litigation, Basson disposed of the one third membership interest in the Corporation that was intended by the parties to ultimately be transferred to Hanna. Basson took the view that the agreement, including the right of pre-emption, was invalid.

In light of Basson's subsequent stance that the agreement was invalid, Hanna sought an order against Basson for specific performance of the agreement – in the form of a claim for payment of a sum of money in lieu of specific performance.

PG Cilliers AJ, for the court, held that despite Basson's averments regarding his cancellation of the agreement, the evidence established that the agreement was still in existence at the time the litigation commenced. Hanna was accordingly, in principle, entitled to claim specific performance of the agreement, that is to acquire the membership interests in the Corporation, and his claim would generally be granted, subject only to the court's discretion.

Given the disposition of the membership interests subsequent to the commencement of proceedings, the maxim lex non cogit ad impossibilia was applied, such that specific performance will never be ordered if compliance with the order would be impossible.

It has become settled practice that a claim for payment of "damages in lieu of specific performance" is competent. Hanna was therefore entitled to payment of a sum of money in lieu of performance in forma specifica in an amount that constituted the difference between the objective market value of one third of the membership interest in the third respondent, less the original contract price – after deducting the installments that were paid by him. Basson was ordered to pay Hanna the relevant amount.

Obiter dictum

PG Cilliers AJ made the following comments in relation to the use of the terminology referring to "damages" in claims for the payment of a sum of money in lieu of performance of contractual obligations in forma specifica:

  • Such claim is not strictly one for the payment of damages.
  • The claim remains one for specific performance, albeit not in the nature of performance in forma specifica.
  • The use of the word "damages" also unnecessarily creates confusion with a claim for the payment of contractual damages pursuant to a breach of contract.
  • The nature of the claim for payment of contractual damages pursuant to a breach of contract and the nature of a claim for the payment of a sum of money in lieu of performance of contractual obligations in forma specifica are fundamentally different.
  • The first concerns payment of damages caused by reason of the breach of contract and can be claimed irrespective of whether the contract is rescinded or not.

Pleading Specific Performance.

A party wishing to claim specific performance in terms of a contract must:

(a)     allege and prove the terms of the contract;

(b)     allege and prove compliance with any antecedent or reciprocal obligation or tender to perform it fully;

(c)     allege non-performance by the defendant; and

(d)     claim specific performance.

Adam Pike
Author: Adam Pike
Adam Pike holds BA, LLB and LLM degrees from the University of Cape Town. His LLM, attained from the School of Advanced Legal Studies at the University of Cape Town, focused on commercial and corporate law, particularly corporate governance and securities. Adam specialises in the implementation of corporate actions and transactions.

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